Negative gearing and CGT changes: why new builds are about to become the investor product

For decades, most property investors in Australia have bought established homes, attracted by negative gearing and a generous capital gains tax discount that applied equally to old and new property. From 1 July 2027 that changes. The reforms announced in the May Budget, now law, limit negative gearing to new builds and replace the capital gains tax discount for most investors, while keeping the old treatment for eligible new builds.

The Government’s stated aim is to focus tax support on new housing supply. For builders, that could make new homes the preferred product for investors. But the reforms arrive alongside higher interest rates, rising costs and a ban on SMSF borrowing for residential property. This article explains what the law does and what it could mean for builders.

This is general information, not tax advice. Builders should refer buyers’ tax questions to qualified advisers.

What changes on 1 July 2027

Negative gearing

Negative gearing lets an investor deduct losses on a rental property, such as when interest and costs exceed rent, against their other income, including wages. From 1 July 2027, that treatment is limited to new builds.

Investors who buy established housing after Budget night, 7:30pm AEST on 12 May 2026, will still be able to deduct losses against residential property income, and carry forward unused losses to future years, but will not be able to deduct them against other income such as wages. Properties held before Budget night are unaffected by the negative gearing change. Investors who buy new builds can still deduct losses from other income.

Capital gains tax

The 50% capital gains tax discount for individuals, trusts and partnerships is replaced with a discount based on inflation, through cost base indexation, and a minimum tax of 30% on capital gains. The changes apply only to gains arising after 1 July 2027. Investors in new builds can choose between the 50% discount and the new arrangements.

Other measures

The Budget also announced a minimum 30% tax on discretionary trusts from 1 July 2028, with some exceptions, rollover relief for three years from 1 July 2027 to help small businesses restructure, and the reintroduction of loss carry-back for businesses. Builders operating through trusts or companies should talk to their accountants about how these affect their own business structures.

Why new builds come out ahead

The combined effect is that, for an investor buying after Budget night, a new build offers tax treatment that an established home does not: losses deductible against wages, and a choice of capital gains treatment. That is a meaningful advantage for investors who expect a property to be negatively geared in its early years.

The policy logic is that investor demand, redirected from established homes to new ones, will help fund additional housing supply rather than bidding up prices of existing homes. Whether that happens depends on how investors respond, and on the other forces acting on the market.

What “new build” means

The detail of what counts as an eligible new build is set out in the legislation, and it matters. Builders and sales staff should not give buyers definitive answers about whether a particular property qualifies. Refer buyers to the ATO’s guidance and their own tax adviser. What builders can do is understand the broad intent, focused on new supply, and make sure their contracts and documentation clearly show when a home was built and when it was first sold.

The forces pulling the other way

The tax reforms favour new builds, but several other forces are working against investor demand in 2026.

• Interest rates. The Reserve Bank has raised the cash rate three times this year, to 4.35%, and says new housing loans are declining noticeably.
• The SMSF ban. From 10 August 2026, SMSFs can no longer take out new limited recourse loans to buy residential property. HIA’s survey of large builders found thousands of signed contracts involving SMSF borrowing, many expected to be cancelled.
• Construction costs. The National Housing Supply and Affordability Council says house construction costs are 51% above pre-COVID levels, which affects the price investors pay for new homes and the returns they can expect.
• Timing. The negative gearing change starts on 1 July 2027. Some investors may wait to see how the rules work in practice.

The Council described recent tax policy changes as likely to have a modest effect on housing supply. Industry groups have argued the effect of the SMSF ban on new housing could be significant. The truth will show in investor lending and new home sales over the next year.

What it means for different builders

Volume and project home builders

Builders who sell house-and-land packages to investors could see a shift in demand towards new builds once the rules start, particularly in growth areas. But the SMSF ban removes one finance channel, and rates are weighing on borrowing capacity. Watch investor enquiries and finance approvals closely.

Medium-density builders

Apartments and townhouses sold off the plan depend heavily on investor pre-sales. New build tax treatment makes them relatively more attractive to investors than established units, which could support pre-sales. But the SMSF ban and higher rates may offset that.

Small builders and dual occupancies

Knockdown rebuilds, dual occupancies, secondary dwellings and small multi-unit developments may attract investors and owners looking to add a new dwelling to a site they already own. Planning reforms in NSW allowing more low- and mid-rise housing could support this segment.

Renovation builders

Renovations of established investment properties do not change the negative gearing treatment of the property. Investors holding established homes from before Budget night keep their existing treatment. The reforms may make some investors more cautious about buying established homes to renovate.

A worked example: two investors, two choices

Consider two investors, both on a high income, each planning to buy a rental property in late 2027 with a large loan that means the property will run at a loss for the first few years.

The first buys an established house. Under the new rules, the rental loss cannot be deducted against their salary. It can only offset other residential property income, and any unused loss is carried forward. Their after-tax cash flow in the early years is worse than it would have been under the old rules.

The second buys an eligible new build. The rental loss can still be deducted against their salary, as before. When the property is eventually sold, they can choose the 50% capital gains discount or the new indexation arrangements, whichever suits.

For investors who rely on negative gearing, the difference is significant, and it is exactly the behavioural shift the reforms are designed to cause. Individual circumstances vary widely, and investors should get their own advice, but the direction is clear.

Timing: why demand may not move immediately

The reforms were announced in May 2026 and start in July 2027. In the meantime, investors buying established homes after Budget night already know their properties will lose negative gearing against other income from July 2027. Some may have brought purchases forward before Budget night; others may be waiting. The full effect on new home demand is more likely to show from 2027 onwards, as investors make decisions under the new rules and as the first eligible new builds are completed and rented.

For builders, that suggests planning for a gradual shift rather than an immediate surge, and watching investor enquiries and lending data as the start date approaches.

Talking to investor clients

Investors are sophisticated buyers, and many will already know the broad shape of the reforms. Builders add value by explaining the product clearly: when the home will be completed, what rent it might achieve (with independent advice), what it costs to maintain, and what warranties apply. Leave tax and financial advice to the professionals, and make sure your marketing does not overstate tax benefits.

The bottom line

From 1 July 2027, the tax system favours investors who buy new homes over those who buy established ones. That is a structural shift in favour of new housing, and it could make new builds the default investor product over time. In the short term, rates, costs and the SMSF ban are working against investor demand. Builders who sell to investors should understand the rules at a high level, avoid giving tax advice, and plan for demand that builds towards and beyond July 2027.

Questions builders ask

• Housing supply
• Investors
• SMSF
• Tax

Published 23 August 2026. General information for builders, not legal, financial or engineering advice for a specific job. Check current requirements with the relevant regulator or standard before relying on them.